The focus for the trading day was meant to be the US employment report but the ‘flash crash’ in GBP during the start of the Asian trading session was the highlight.
Just after noon NZ time Friday, GBP plunged from a 1.26 handle to around 1.18, although one FX platform showed a low around 1.1380 – one for the lawyers to work out which trades will be honoured.
A fat finger, algorithmic trading and option expiries have all been raised as possible factors in the remarkable plunge. Whatever the cause, it only served to highlight the perils of the pound and, although it recovered, it still ended the day down 1.4% at 1.2435. This capped off a poor week for the currency, as investors realised that a ‘hard Brexit’ was the most likely outcome. Our projections have a low of 1.16 by the end of next year, seeing more downside potential in GBP.
The US employment report was on the soft side of expectations, but strong enough to keep the Fed in play for a December hike, with two more employment reports to digest by then. The USD was softer after the release.
The NZD traded through the GBP crash without much of a hiccup, but a nearly 1-cent range ensued following the US employment report. NZD traded up towards 0.7200, and down towards 0.7110, before finishing the week around 0.7160. A lack of data and US holiday should keep ranges tight over the coming day.
NZD/AUD has found good support around the 0.94 level over recent days, ending the week around 0.9440.
EUR seemed unaffected by the GBP crash and it found some strength against the USD after the employment report, closing the week at 1.1200. JPY was the strongest of the majors, following a weak run of late, with USD/JPY down 1% to trade just under the 103 mark.
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